Correlation Between Jiamei Food and Namchow Food

Can any of the company-specific risk be diversified away by investing in both Jiamei Food and Namchow Food at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Jiamei Food and Namchow Food into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Jiamei Food Packaging and Namchow Food Group, you can compare the effects of market volatilities on Jiamei Food and Namchow Food and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Jiamei Food with a short position of Namchow Food. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiamei Food and Namchow Food.

Diversification Opportunities for Jiamei Food and Namchow Food

0.95

Correlation Coefficient

Jiamei Food  Namchow Food

Almost no diversification

The 3 months correlation between Jiamei and Namchow is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Jiamei Food Packaging and Namchow Food Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Namchow Food Group and Jiamei Food is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Jiamei Food Packaging are associated (or correlated) with Namchow Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Namchow Food Group has no effect on the direction of Jiamei Food i.e., Jiamei Food and Namchow Food go up and down completely randomly.

Pair Corralation between Jiamei Food and Namchow Food

Assuming the 90 days trading horizon Jiamei Food is expected to generate 1.02 times less return on investment than Namchow Food. But when comparing it to its historical volatility, Jiamei Food Packaging is 1.09 times less risky than Namchow Food. It trades about 0.08 of its potential returns per unit of risk. Namchow Food Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,738  in Namchow Food Group on September 20, 2024 and sell it today you would earn a total of  64.00  from holding Namchow Food Group or generate 3.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Jiamei Food Packaging  vs.  Namchow Food Group

Jiamei Food Packaging

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jiamei Food Packaging are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiamei Food sustained solid returns over the last few months and may actually be approaching a breakup point.

Namchow Food Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Namchow Food Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Namchow Food sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jiamei Food and Namchow Food

The main advantage of trading using opposite Jiamei Food and Namchow Food positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jiamei Food position performs unexpectedly, Namchow Food can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Namchow Food will offset losses from the drop in Namchow Food's long position.

The idea behind Jiamei Food Packaging and Namchow Food Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.